Yahoo Finance Capital Allocation Trends At Malakoff Corporation Berhad (KLSE:MALAKOF) Aren't Ideal
What financial metrics can indicate to us that a company is maturing or even in decline? Typically, we'll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing amount of capital employed. This indicates to us that the business is not only shrinking the size of its net assets, but its returns are falling as well. And from a first read, things don't look too good at Malakoff Corporation Berhad (KLSE:MALAKOF), so let's see why.
Return On Capital Employed (ROCE): What Is It?
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Malakoff Corporation Berhad:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.0016 = RM27m ÷ (RM20b - RM3.1b) (Based on the trailing twelve months to March 2024).
Therefore, Malakoff Corporation Berhad has an ROCE of 0.2%. In absolute terms, that's a low return and it also under-performs the Renewable Energy industry average of 6.6%.
See our latest analysis for Malakoff Corporation Berhad
Above you can see how the current ROCE for Malakoff Corporation Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Malakoff Corporation Berhad for free.
The Trend Of ROCE
The trend of ROCE at Malakoff Corporation Berhad is showing some signs of weakness. To be more specific, today's ROCE was 3.9% five years ago but has since fallen to 0.2%. On top of that, the business is utilizing 33% less capital within its operations. The combination of lower ROCE and less capital employed can indicate that a business is likely to be facing some competitive headwinds or seeing an erosion to its moat. Typically businesses that exhibit these characteristics aren't the ones that tend to multiply over the long term, because statistically speaking, they've already gone through the growth phase of their life cycle.
The Key Takeaway
In summary, it's unfortunate that Malakoff Corporation Berhad is shrinking its capital base and also generating lower returns. Despite the concerning underlying trends, the stock has actually gained 24% over the last five years, so it might be that the investors are expecting the trends to reverse. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.
One more thing: We've identified 2 warning signs with Malakoff Corporation Berhad (at least 1 which is a bit concerning) , and understanding these would certainly be useful.
While Malakoff Corporation Berhad may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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